During the past 12 months a troubling trend has developed in the area of brownfield redevelopment. In several routine property
transactions, buyers, sellers and lawyers have had the unpleasant experience of having their deals scuttled by a questionable
application of the Resource Conservation and Recovery Act.

RCRA, of course, is the so-called federal “cradle to grave” statute that governs treatment, storage and disposal
of hazardous waste. When a RCRA-permitted facility ceases hazardous waste operations, it must go through closure or corrective
action to remediate any associated contamination. Most environmental practitioners would likely agree that it is indeed appropriate
for the permittee to clean up contamination resulting from its operation. Several problems arise, however, when an environmental
agency seeks to impose RCRA closure and/or corrective action obligations on a subsequent landowner of a former RCRA-permitted
facility.

The BFPP defense and comfort letters

Deveau

Typically, in the world of brownfield redevelopment, parties are concerned about potential liability under the Comprehensive
Environmental Response Compensation and Liability Act or CERCLA. CERCLA imposes strict, joint and several liability on the
current owner of contaminated property, regardless of fault. As a result, buyers of brownfield properties typically are very
careful to avoid or limit such liability. Congress provided an effective tool for avoiding CERCLA liability in such transactions
with the enactment of the 2002 brownfield amendments, which created the Bona Fide Prospective Purchaser defense. To obtain
the benefits of the defense, there are certain pre-closing and post-closing requirements. Pre-closing, thorough due diligence
is one of the most important requirements. Post-closing, reasonable steps to ensure human health and the environment are protected
is likely the most important requirement. U.S. EPA and many state environmental agencies will also provide qualifying buyers
with comfort letters, which generally say that the agency believes the buyer has met all BFPP requirements and, therefore,
has no CERCLA liability. Even though comfort letters are non-binding, clients and lenders love them because it gives them
a degree of “comfort” that they won’t be subject to crushing CERCLA liability after closing.

The RCRA time bomb

The RCRA problem has arisen in the following context. During due diligence, the prospective buyer discovers contamination
that indicates that a prior owner (RCRA permittee) failed to properly perform RCRA closure. As a result, the agency (rightly)
withdraws its prior finding that the site was closed and (wrongly) declares that the current title holder (that has always
operated a flower shop at the site) is required to complete RCRA closure/corrective action at the site. Moreover, the agency
further announces that any subsequent title holder will also be subject to RCRA closure and/or corrective action even if such
owner is a BFPP and has obtained a comfort letter.

An even worse scenario (which has also happened) is the following: Years after closing, with a comfort letter still firmly
in hand, a BFPP is notified that RCRA has asserted jurisdiction over the property. And, per RCRA, the poor guy who holds title
is deemed to be the RCRA permit-holder for purposes of corrective action.

There are several problems with this agency policy.

First, environmental agencies apply it to not only former big volume treatment and disposal facilities, but also to small-time
operations that stored hazardous waste on site.

Second, a buyer can be “liable” even if his pre-purchase due diligence revealed the site had received written
regulatory closure confirmation. Clearly, this creates a RCRA time bomb giving “buyer beware” a whole new meaning.

Third, it imposes a serious threat to brownfield redevelopment because so many properties are potentially implicated.

Fourth, it threatens the future viability of the BFPP defense and agency comfort letters, and

Fifth, as discussed below, it’s just plain wrong legally.

RCRA does not apply to subsequent title holders

Unfortunately, there isn’t much caselaw interpreting this issue. Both RCRA and CERCLA came onto the legal scene in
1980. The cases from the early 1980s suggest that initially U.S. EPA wasn’t sure which statute to utilize in cleaning
up contaminated sites. However, U.S. EPA quickly figured out that the strict, joint and several liability scheme of CERCLA
made it the enforcement/remediation tool of choice. As a result, there are virtually no cases dealing with subsequent owners
of former RCRA-permitted facilities … at least until a few months ago.

In May, New York’s appellate court held that, under RCRA regulations (essentially identical to Indiana’s) a subsequent
owner was not subject to corrective action requirements at a formerly permitted storage facility. Thompson Corners, LLC
v. New York State Dep’t of Environmental Conservation, 2014 WL 1924148 (N.Y. App. Div. May 15, 2014).

The case arose when New York’s Department of Environmental Conservation issued an order requiring a subsequent owner
of a former RCRA-permitted property to comply with RCRA corrective-action requirements. The trial court upheld DEC’s
corrective-action order. Thompson appealed, resulting in the May 15 decision.

The court ultimately found that RCRA regulations contemplate that corrective action can only be imposed as a condition of
obtaining a permit to operate a RCRA facility. Citing New York’s version of CERCLA, the court explained further that
the Legislature knew how to impose strict liability on subsequent property owners and did not do so with respect to RCRA.

The same result should apply in Indiana. Indiana’s RCRA regulations are materially the same as New York’s. Similarly,
Indiana’s Legislature could have imposed strict corrective-action liability on subsequent owners of formerly permitted
RCRA facilities but chose not to do so.

Nevertheless, if environmental agencies do not back off their application of RCRA to subsequent brownfield purchasers, an
Indiana court will need to resolve this dilemma. Until that happens, buyers (and their lawyers) need to beware of the lurking
RCRA threat.•

XBTXFrank J. Deveau is co-chair of Taft’s environmental practice group and a member of the firm’s
executive committee. For over 30 years, he has devoted his practice primarily to all aspects of environmental law, related
administrative and civil litigation and insurance recoveries. Deveau also frequently serves as a mediator in environmental
disputes. The opinions expressed are those of the author.

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